Beginning in July, North Carolina drivers will start seeing combined bills for their vehicle’s property taxes and registration renewals, which have previously been dealt with separately.
The change may be a source of confusion for taxpayers – property taxes have gone to the county and registration fees to the state. But the combined collection is designed to streamline the payment process and yield increased revenue for the counties. In Wake County, for example, property-tax revenue on vehicles could increase by more than $3 million annually.
Department of Motor Vehicles spokesperson Margaret Howell said officials expect a period of adjustment for drivers and vehicle owners.
“We are hopeful that it will be something that becomes second nature and will help with tax collection and help the DMV get you registered,” Howell said.
The system has been in the works since the General Assembly passed legislation calling for it in 2005. It’s taken eight years to craft a system to let the DMV retrieve tax information from revenue offices in each of North Carolina’s 100 counties, which calculate property tax rates differently. The DMV now is able to pull up the property tax rates for any owner and collect the money. The DMV will reimburse each county for its vehicle property taxes on a monthly basis.
Wendell resident Steve Sledge, who said he had not heard about the upcoming change, said that moving up the property tax date could make things harder for people like him who depend on year’s-end income to pay property taxes.
“That’s human nature – you put off the unpleasant stuff as long as you can,” he said.
The new system is projected to raise revenue for the counties and reduce the costs of tax collection.
Before, property taxes on automobiles were billed four months after a car owner renewed his or her license, but this created problems for tax collection.
It was not cost-effective to take owners to court for delinquency on small tax payments, so some citizens postponed their payments until the next time they renewed their licenses, Wake County revenue director Marcus Kinrade said.
Durham, Orange and Wake counties each have an annual vehicle property tax collection rate of about 90 percent.
By tying the tax payment to registration renewal, the new program should raise the collection rate to nearly 100 percent, said Dwane Brinson, Orange County revenue director.
“That’s going to have a drastic impact on revenue for local governments,” Brinson said. “It’s much more of an incentive to pay your taxes because you’re not going to want to drive around with that old tag and have the sheriff pull you over.”
In Wake County, for instance, unpaid vehicle taxes amounted to about $4.5 million in a given fiscal year, although much of that money comes in after two more years of collection efforts. Now that vehicle owners will be blocked from renewing their registration unless they pay the tax up front, Kinrade said he expects to collect $3-4 million more in the first year of the new program.
The change makes sense if it helps tax enforcement, said Josh Lucas, a 22-year-old vehicle owner from North Raleigh.
“Tax me now, tax me later – I don’t think the time element plays into it,” he said.
On top of the boost in tax payment, county revenue offices will be able to cut costs associated with collecting these unpaid taxes.
Durham County Tax Administrator Kimberly Simpson said it took “an awful lot of work” to get Durham to the 90 percent figure. Only 30 percent of Durham vehicle owners pay their vehicle property tax on time, and the number does not rise to 70 percent until three months of interest have accrued.
“Most jurisdictions spend an enormous amount of tax payers’ money to make sure people pay their obligation,” Simpson said.
To boost compliance, revenue agents use techniques like bank attachments, which freeze someone’s bank account until they pay, and garnishments, which take the money straight from the property owner’s pay check.
Kinrade said he reduced his budget for revenue collection in Wake County by $350,000 based on the decreased need for postal services and other costs associated with collecting unpaid vehicle taxes.
Other questions remain
The new payment schedule will create an expensive hitch for drivers who had refrained from paying until their registration was up for renewal again.
“Taxpayers are used to being billed in arrears and now they’re going to have to pay in advance,” Kinrade said. “If a taxpayer has a registration blocked because they didn’t pay the old tax bill, they’ll have to pay that bill and the new bill, so they’ll have to pay two bills at the same time.”
Public library manager Robert Lambert of Willow Spring said that he did not think the change would hurt him, but he could see it being bad for drivers who already have trouble paying the bills.
“Getting hit with more at once can be hard for people on the lower end of the income scale,” Lambert said.
An additional complication will come when some vehicle owners receive two vehicle property tax bills within 12 months.
Nobody will be taxed twice for the same year, Howell said. However, because of the previous four-month delay between license renewal and tax billing, some citizens will be taxed for the next year of registration within 12 months of paying the previous year’s tax.
For instance, someone who renews registration in July, still under the old system, will be billed four months later. If she pays the property tax on time – by November – she will receive another property-tax bill due July 2014, but this will be for the coming year of registration.